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Rationalizing School Spending: Efficiency, Externalities, and Equity, and Their Connection to Rising Costs

In: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America

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  • Eric A. Hanushek

Abstract

The analytical base for much of the current education discussion is built on school attainment simple years of school completed. This choice is convenient for both theoretical and empirical discussions and is undeniably useful in many contexts. Nevertheless, the central focus of current policy deliberation is quality of schooling, not quantity, and the arguments and analysis pertaining to quantity do not readily transfer to quality. The central thesis of this paper is straightforward. Much of the policy discussion about education is built on a poor understanding of the underlying structure of education and schools, but the ambiguities and uncertainties lead to systematic biases toward increased spending on schools. Evidence on high rates of return to investment in quantity of schooling are translated into increased spending aimed at improving quality, yet with little assurance of actual improvement. Similarly, concerns about equity and about externalities from schooling push spending up without satisfying these objectives. A related issue, addressed at the end of the paper, is how citizens view spending in the context of their local districts. Preliminary analysis of voting on school budgets in New York State suggests no systematic relationship between performance of schools (measured in terms of student achievement) and willingness to support proposed budgets.
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Suggested Citation

  • Eric A. Hanushek, 1996. "Rationalizing School Spending: Efficiency, Externalities, and Equity, and Their Connection to Rising Costs," NBER Chapters,in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 59-106 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:6559
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    Cited by:

    1. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, pages 133-150.
    2. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, pages 1719-1750.
    3. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, pages 1719-1750.

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